On The Debt Ceiling & Drowning the Government in the Bathtub

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The mainstream coverage of the debt ceiling standoff and the prospect of government shutdown and how that thing is seen by the people who might precipitate it is predicated upon a fundamental misunderstanding. To the Tea Partiers and Grover Norquist-Ted Cruz-Rand Paul wing of the Republican Party, a government shutdown is seen less as a potential disaster in which markets and society are sent into turmoil, and more as a potential wonderland of enforced austerity where with the government handcuffed, the creative forces of the free market are finally unleashed.

The libertarian financial analyst Mish Shedlock exemplifies these sentiments:

Looking for a reason to support a government shutdown? If so, please consider Obama Stripped to Skeleton Staff in a Government Shutdown.

Mish points to the austerity measures the government would be put under:

 A U.S. government shutdown means President Barack Obama will have fewer people to cook meals, do the laundry, clean the floors or change the light bulbs, according to a White House contingency plan.

About three-fourths of president’s 1,701-person staff would be sent home. The national security team would be cut back, fewer economists would be tracking the economy and there wouldn’t be as many budget officials to track spending.

Of the total, 438 people work directly for the president. Under a shutdown, 129 could continue working, according to the contingency plan.

Biden, who has a staff of 24, would have had to make do with 12.

Obama’s national security staff of 66 would be cut to 42. Similar staff cuts would be imposed at the White House Office of Management and Budget, the Council on Environmental Quality, the Council of Economic Advisers and the Office of National Drug Control Policy, which are all part of the president’s executive office.

Mish concludes:

Fantastic Idea

If you think that a government shutdown is a fantastic idea (I sure do), then please contact your elected representatives and let them know.

But there are at least two other factors beyond simply wanting less government that may make a government shutdown and debt default attractive to the Tea Party wing.

The first of which is that the austerian worldview exemplified by the Wall Street Journal editorial page — in which large-scale deficit spending was expected to precipitate soaring interest rates and inflation — has largely been proven wrong by events. Interest rates and inflation have remained low. The Tea Party wing of the Republican Party now has an opportunity to try to make their initially wrong predictions come true by throwing the United States into default on its debt, and sending a message to markets and international investors that the US government and US Treasury debt is not a safe asset. Whether or not a government shutdown would actually result in a debt default (the Treasury would under such an eventuality likely prioritise debt service), and whether this would actually lift interest rates significantly are other matters, but shutting down the government and defaulting on the debt would certainly enforce austerity which is what the Republicans and especially the Tea Party wing want.

The second — and perhaps the greater factor — is the desire to prevent Obamacare taking effect. Now, I am not convinced that Obamacare can bring down healthcare costs as much as a Canadian-style or European-style system. Obamacare is certainly not an ideal system, although its earlier implementation in Massachusetts does appear to be fairly successful . But it does bring the United States much closer to something approaching universal coverage. With the message of the last Republican election campaign being that 47% of the population (the “takers”) is mooching off 53% of the population (the “makers”), Obamacare is seen by the Tea Party wing and probably the Republicans in general as the last turning point on the road to socialism. And avoiding the implementation of Obamacare is something that, I think, the Republican Party and especially the Tea Party wing will go all out to do.

Now, how far the Republicans are willing to go down this road remains to be seen. The more moderate wing may be willing to settle for a deal that avoids government shutdown in return for increasing the pace of austerity. But the impending implementation of Obamacare, and the general attraction of a government shutdown will strengthen the will of the Tea Party wing to not negotiate.

Personally, while I do think we are in the long run headed toward a world of increased decentralisation and a lesser state role (primarily as the result of technology), I don’t think a government shutdown will do anything to advance the cause of human liberty. In fact, I think a longer-term shutdown would probably end in civil unrest — a lot of people are dependent on government spending for income — and market turmoil (not least because markets seem to have priced in an easy resolution to the standoff). So the standoff will almost certainly end in a deal permitting a debt ceiling increase. How much carnage will occur before then remains to be seen.

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Rick Perry: Heir to Bush & Cheney

So a slick, folksy Governor of Texas just parachuted into the Republican Presidential race. Remind you of anyone? Hair coiffed, teleprompter set to patronisingly moralistic, Rick Perry — who previously promised America he would not run for President — has decided that the country needs yet more faith-based initiatives, public prayer and foreign excursions. In his own words:

One in six work-eligible Americans cannot find a full-time job. That is not a recovery — that is an economic disaster.

He’s right. But of course — rather than investing in dilapidated infrastructure — Perry believes that righting our economic woes is just a matter of getting right with God. From CNN:

On August 6, Texas Gov. Rick Perry wants you to drop the Texas BBQ, grab a moist towelette and fold your hands to pray. On Monday, Perry declared the date a “day of prayer and fasting for our nation’s challenges.”
“America is in crisis, ” the Republican governor says on a website promoting the event. “We have been besieged by financial debt, terrorism, and a multitude of natural disasters.”

Perry invited the 49 other governors in the U.S. to issue similar proclamations, “encouraging their constituents to pray that day for unity and righteousness for our states, nation and mankind.” He wants other governors to join him at Houston’s Reliant Stadium, home to the NFL’s Houston Texans, for an August 6 event called The Response, organized by a conservative Christian group.

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Teabagging for the Military Industrial Complex


From Tea Party Nation leader Judson Phillips, via the Economist:

If we decided to build a couple of new carriers, thousands of workers would be hired for the shipyards. Thousands of employees would be hired for the steel mills that would provide the steel for the hull and various sub contractors would hire thousands. Do you know what that means?It means they would receive paychecks and go out and spend that money. That would help a recovery. That is a shovel ready project!Increasing spending for the military does a couple of things. It not only not only stimulates the economy, it protects our nation. That is a better investment than say spending money on teaching Chinese prostitutes how to drink responsibly.

I hold very strong views regarding the claim that military spending helps the economy. As I explained previously:

The most obvious example of the unproductive use of money is war. Time, labour, materials, ideas and spending go into warfare, and what comes out? Destruction — bombs are destroyed when they hit the ground, and they destroy the area around which they hit. They destroy infrastructure, they kill people, and they create hatred and resentment that very often triggers more and greater warfare.

Most bizarrely, the Tea Party has since its inception (supposedly) been committed to reducing government expenditures, to pay down debt. Military expenditures are still huge. And is America safer than ever? Is the additional military spending helping us pay down debt?

No.  America’s indebtedness allows China to boss America around. The level of taxation and debt necessary for high military spending is preventing America from investing in the poor, in youth, in alternative energy, and in infrastructure that would create wealth, opportunity and security for the nation, instead of short-termist gains for corporations, bureaucrats and the military industrial complex.

Phillips’ bizarre statement adds fuel to the fire of the view that the Tea Party is (largely) a manipulated group of poor and lower-middle class voters who are in fact manoeuvring for the interests of a tiny corporatist and industrialist elite. The “all government spending is bad” rhetoric has quickly been turned around to “spend less on welfare, spend more on bombing brown people to death”, the rallying cry of big government neo-Conservatives like George W. Bush and Dick Cheney. That administration increased the national debt by a higher proportion than any Presidency in history, creating deeper debt woes, and handing huge power and wealth to investors like the Communist Party of China. Those early anti-tax and anti-debt protests were long ago astroturfed by corporatists who want more and more government handouts to big business and to the military industrial complex.

Should you hate the Tea Party? No. The Tea Party protesting on the street is not your enemy: the poor and lower-middle class are “taxed enough already”, often paying a higher nominal income tax rate than hedge fund billionaires. Like many in America, they and their children are increasingly unemployed. Their house prices have fallen. Their businesses have stumbled. They are having difficulty getting loans to invest in new projects and businesses. So the Tea Party are right to get mad. They are right to get angry. But their targets — immigrants, welfare recipients, climate change scientists, foreigners and liberals — are way off the mark. The real enemy of freedom in America is corporatism, and billionaires who live off government handouts and military spending, who prevent tax hikes on the super-rich, and who prevent spending on jobs and infrastructure for the poor. The Tea Party movement has been deliberately misdirected, and now we see what its leaders are gunning for: more military spending, more government handouts to big business, more jobs for the boys. This is what has to end for America to get back on its feet. So once again, I give you Eisenhower’s 1961 speech: